OMX Officemax Incorporated

NAPERVILLE, Ill., April 30 /PRNewswire/ -- OfficeMax(R) Incorporated (NYSE:OMX) today announced the results for its first quarter ended March 29, 2008. Total sales decreased 5.5% in the first quarter of 2008 to $2.3 billion compared to the first quarter of 2007. Net income increased in the first quarter of 2008 to $63.3 million, or $0.81 per diluted share, from $58.5 million, or $0.76 per diluted share, in the first quarter of 2007. Results for the first quarter of 2008 and 2007 included items that are not considered indicative of core operating activities, herein referred to as unusual items. Results for the first quarter of 2008 included three unusual items which, if excluded, would reduce income before taxes by $16.3 million and included a benefit of $20.5 million recorded as other income related to the company's investment in Boise Cascade, L.L.C., which was partly offset by an expense of $2.4 million recorded in the Contract segment related to the consolidation of manufacturing facilities in New Zealand, and an expense of $1.8 million recorded in the Retail segment related to employee severance for restructuring the Retail field and ImPress print and document services management organization. The cumulative effect of these three items, if excluded, would reduce first quarter 2008 net income by $9.8 million, or $0.13 per diluted share. Results for the first quarter of 2007 included one unusual item which, if excluded, would increase net income for the first quarter of 2007 by $1.1 million, or $0.01 per diluted share. Sam Duncan, Chairman and CEO of OfficeMax, said, "In the first quarter, we continued to experience lower sales levels in both our Contract and Retail segments reflecting the weaker U.S. economy and our more disciplined, analysis-driven approach to sales generation and retention. However, we were successful in streamlining operations and pursuing cost controls across our company. In our Contract segment, we offset lower sales with improved gross margin rates to drive operating income margin improvement. In our Retail segment, deleveraging of fixed cost of sales and operating expenses contributed to lower operating income margin. Despite challenges in certain parts of our business as we navigate the weaker U.S. economy, we continue to advance the strategies of our turnaround plan." Contract Segment Results OfficeMax Contract segment sales decreased 5.5% to $1.20 billion in the first quarter of 2008 compared to the first quarter of 2007, reflecting U.S. Contract sales decline of 12.4%, partially offset by International Contract operations sales growth of 14.7% in U.S. dollars (a sales decrease of 0.9% in local currencies). U.S. Contract sales declined compared to the prior year period primarily due to the company's increased discipline in account acquisition and retention, weaker U.S. business spending that impacted sales from existing corporate customer accounts, and lower sales from small market customers. Contract segment gross margin increased to 22.7% in the first quarter of 2008 from 22.1% in the first quarter of 2007, primarily due to increased discipline in account acquisition and retention. During the first quarter of 2008, Contract segment operating expense included a $2.4 million unusual item, which represented 0.2% of sales, related to the consolidation of manufacturing facilities in New Zealand. Including this item, Contract segment operating expense as a percent of sales increased to 17.7% in the first quarter of 2008 from 17.4% in the first quarter of 2007, primarily due to deleveraging of fixed expenses from lower sales, mostly offset by targeted cost controls and reduced incentive compensation expense. Contract segment operating income, including the $2.4 million unusual expense item, decreased to $59.6 million, however, operating income margin increased to 5.0% of sales in the first quarter of 2008, from operating income of $59.9 million, or 4.7% of sales, in the first quarter of 2007. Retail Segment Results OfficeMax Retail segment sales decreased 5.5% to $1.11 billion in the first quarter of 2008 compared to the first quarter of 2007, reflecting a same-store sales decrease of 8.7% partially offset by sales from new stores. Retail same-store sales for the first quarter of 2008 declined across all major product categories due to weaker U.S. consumer and small business spending and the negative impact of the Easter holiday occurring in the first quarter of 2008. Retail segment gross margin decreased to 28.5% in the first quarter of 2008 from 29.3% in the first quarter of 2007, due to deleveraging of fixed occupancy-related costs, partially offset by a sales mix shift to an increased percentage of higher-margin core office supplies category sales. During the first quarter of 2008, Retail segment operating expense included a $1.8 million unusual item, which represented 0.2% of sales, related to employee severance for restructuring the Retail field and ImPress print and document services management organization. Including this item, Retail segment operating expense as a percent of sales increased to 25.8% in the first quarter of 2008 from 23.8% in the first quarter of 2007, primarily due to deleveraging of expenses from the same store sales decrease and new stores, partially offset by reduced incentive compensation expense. Retail segment operating income, including the $1.8 million unusual expense item, decreased to $29.4 million, or 2.7% of sales in the first quarter of 2008 from operating income of $64.6 million, or 5.5% of sales, in the first quarter of 2007. During the first quarter of 2008, OfficeMax opened six retail stores in the U.S. and six retail stores in Mexico. OfficeMax ended the first quarter of 2008 with a total of 988 retail stores, consisting of 914 retail stores in the U.S. and 74 retail stores in Mexico. Corporate and Other Segment Results The OfficeMax Corporate and Other segment includes support staff services and certain other expenses that are not fully allocated to the Retail and Contract segments. Corporate and Other segment operating expense decreased to $10.4 million in the first quarter of 2008 from $14.4 million in the first quarter of 2007, primarily due to lower incentive compensation expense and reduced legacy-related costs. During the first quarter of 2008, OfficeMax other income before taxes benefited from a $20.5 million unusual item related to the company's investment in Boise Cascade, L.L.C., primarily from their sale of a majority interest in their paper and packaging and newsprint business completed during the first quarter of 2008. During the first quarter of 2007, OfficeMax minority interest, net of income tax was negatively impacted by a $1.1 million unusual item related to the sale of OfficeMax's Contract operations in Mexico to Grupo OfficeMax, our 51% owned joint venture. As of March 29, 2008, OfficeMax had total debt of $368.3 million, excluding $1.470 billion of timber securitization notes which have recourse limited to $1.635 billion of timber installment notes receivable. During the first quarter of 2008, OfficeMax generated $142.4 million of cash from operations, an increase of $223.3 million from the first quarter of 2007. OfficeMax invested $33.3 million for capital expenditures in the first quarter of 2008 compared to $28.1 million in the first quarter of 2007. "While we are impacted by the weaker U.S. economy, we remain steadfast in implementing our turnaround plan and operating initiatives," Mr. Duncan concluded. "The sales declines we experienced during the past two quarters have continued in April. However, we remain committed to pursuing initiatives in both Contract and Retail that will protect our gross margin and streamline our cost structure. We are focused on further leveraging complementary aspects of our Contract and Retail businesses as well as driving differentiation in our merchandising and marketing. Overall, we continue to aim our strategies at managing through the current macroeconomic environment while also building the foundation for OfficeMax to generate long-term shareholder value." Forward-Looking Statements Certain statements made in this press release and other written or oral statements made by or on behalf of the company constitute "forward-looking statements" within the meaning of the federal securities laws, including statements regarding the company's future performance, as well as management's expectations, beliefs, intentions, plans, estimates or projections relating to the future. Management believes that these forward-looking statements are reasonable. However, the company cannot guarantee that it will successfully execute its turnaround plans or that its actual results will be consistent with the forward-looking statements and you should not place undue reliance on them. These statements are based on current expectations and speak only as of the date they are made. The company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise. Important factors regarding the company which may cause results to differ from expectations are included in the company's Annual Report on Form 10-K for the year ended December 29, 2007, under Item 1A "Risk Factors." Conference Call Information OfficeMax will host a conference call with analysts and investors today to discuss its first quarter 2008 financial results at 9:00 a.m. Eastern Time (8:00 a.m. Central Time). To participate in the conference call, dial (800) 374-0165; international callers should dial (706) 634-0995. An audio webcast of the conference call can be accessed via the Internet by visiting the Investors section of the OfficeMax website at http://investor.officemax.com/. The webcast will be archived and available online for one year following the call and will be posted on the "Presentations" page located within the Investors section of the OfficeMax website. About OfficeMax OfficeMax Incorporated (NYSE:OMX) is a leader in both business-to- business office products solutions and retail office products. The OfficeMax mission is simple. We help our customers do their best work. The company provides office supplies and paper, in-store print and document services through OfficeMax ImPress(TM), technology products and solutions, and furniture to consumers and to large, medium and small businesses. OfficeMax customers are served by approximately 36,000 associates through direct sales, catalogs, e-commerce and more than 900 stores. To find the nearest OfficeMax, call 1-877-OFFICEMAX. For more information, visit http://www.officemax.com/. Media Contact Investor Relations Contact Bill Bonner John Jennings 630 864 6066 630 864 6820 OFFICEMAX INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) (thousands) March 29, December 29, 2008 2007 ASSETS Current assets: Cash and cash equivalents $211,359 $152,637 Receivables, net 683,520 720,878 Inventories 984,372 1,088,312 Other current assets 201,413 242,874 Total current assets 2,080,664 2,204,701 Property and equipment: Property and equipment 1,304,206 1,279,609 Accumulated depreciation (721,902) (698,954) Property and equipment, net 582,304 580,655 Goodwill and intangible assets, net 1,414,790 1,416,524 Timber notes receivable 1,635,000 1,635,000 Other non-current assets 443,347 446,888 Total assets $6,156,105 $6,283,768 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings $16,281 $14,197 Current portion of long-term debt 7,698 34,827 Accounts payable 771,418 861,285 Accrued liabilities and other 446,206 460,400 Total current liabilities 1,241,603 1,370,709 Long-term debt: Long-term debt, less current portion 344,315 349,421 Timber notes securitized 1,470,000 1,470,000 Total long-term debt 1,814,315 1,819,421 Other long-term obligations: Compensation and benefits 191,759 200,283 Other long-term liabilities 552,576 582,741 Total other long-term liabilities 744,335 783,024 Minority interest 33,414 32,042 Shareholders' equity: Preferred stock 47,752 49,989 Common stock 189,751 188,481 Additional paid-in capital 916,645 922,414 Retained earnings 1,145,943 1,095,950 Accumulated other comprehensive income 22,347 21,738 Total shareholders' equity 2,322,438 2,278,572 Total liabilities and shareholders' equity $6,156,105 $6,283,768 OFFICEMAX INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited) (thousands, except per-share amounts) Quarter Ended March 29, March 31, 2008 2007 Sales $2,302,921 $2,436,253 Cost of goods sold and occupancy costs 1,715,092 1,813,029 Gross profit 587,829 623,224 Operating and other expenses: Operating and selling 424,389 420,768 General and administrative 82,208 93,937 Other operating, net (a) 2,614 (1,576) Operating income 78,618 110,095 Other income (expense): Interest expense (29,680) (30,116) Interest income 21,899 23,037 Other, net (b) 20,617 (3,447) 12,836 (10,526) Income before income taxes and minority interest 91,454 99,569 Income tax expense (27,254) (38,832) Income before minority interest 64,200 60,737 Minority interest, net of income tax (c) (857) (2,198) Net income 63,343 58,539 Preferred dividends (975) (1,008) Net income applicable to common shareholders $62,368 $57,531 Basic income per common share $0.82 $0.77 Diluted income per common share $0.81 $0.76 Weighted Average Shares Basic 75,646 74,992 Diluted 76,553 75,744 (a) First quarter of 2008 includes a $2.4 million unusual item related to the consolidation of the Contract segment's manufacturing facilities in New Zealand, and a $1.8 million unusual item related to restructuring the Retail field and Impress print and document services management organization. The cumulative effect of these two items was a reduction in net income of $2.7 million, or $0.03 per diluted share. (b) First quarter of 2008 includes a $20.5 million unusual item related to the company's investment in Boise Cascade, L.L.C., primarily from their sale of a majority interest in their paper and packaging and newsprint business completed during the first quarter of 2008. This item increased net income by $12.5 million, or $0.16 per diluted share. (c) First quarter of 2007 includes a $1.1 million unusual item related to the sale of OfficeMax's Contract operations in Mexico to Grupo OfficeMax, our 51% owned joint venture. This item reduced net income by $1.1 million, or $0.01 per diluted share. OFFICEMAX INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (thousands) Quarter Ended March 29, March 31, 2008 2007 Cash provided by operations: Net income $63,343 $58,539 Items in net income not using (providing) cash: Depreciation and amortization 35,254 32,083 Other 1,647 10,832 Changes other than from acquisitions of business: Receivables and inventory 144,169 62,467 Accounts payable and accrued liabilities (91,160) (251,026) Income taxes and other (10,827) 6,190 Cash provided by (used for) operations 142,426 (80,915) Cash used for investment: Expenditures for property and equipment (33,278) (28,124) Proceeds from sale of assets 303 - Cash used for investment (32,975) (28,124) Cash used for financing: Cash dividends paid (11,499) (11,235) Changes in debt, net (30,451) (25,681) Proceeds from exercise of stock options - 3,903 Other (8,380) (895) Cash used for financing (50,330) (33,908) Effect of exchange rates on cash and cash equivalents (399) 522 Increase (decrease) in cash and cash equivalents 58,722 (142,425) Cash and cash equivalents at beginning of period 152,637 282,070 Cash and cash equivalents at end of period $211,359 $139,645 OFFICEMAX INCORPORATED AND SUBSIDIARIES SUPPLEMENTAL SEGMENT INFORMATION (unaudited) (millions, except per-share data) Quarter Ended March 29, March 31, 2008 2007 Segment Sales OfficeMax, Contract $1,195.1 $1,264.5 OfficeMax, Retail 1,107.8 1,171.8 2,302.9 2,436.3 Segment income (loss) OfficeMax, Contract $59.6 $59.9 OfficeMax, Retail 29.4 64.6 Corporate and Other (10.4) (14.4) Operating income $78.6 $110.1 Operating income margin 3.4% 4.5% DATASOURCE: OfficeMax Incorporated CONTACT: Media, Bill Bonner, +1-630-864-6066, or Investor Relations, John Jennings, +1-630-864-6820, both of OfficeMax Incorporated Web site: http://www.officemax.com/

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